2006 Articles

Inspectors cannot be on ‘preferred vendor’ lists

I have received numerous phone calls recently from home inspectors regarding “preferred vendor” programs. These are programs where a home inspector pays a fee in order to be able to “advertise” with a real estate office or company. This advertising could be having the inspector’s name on a “preferred vendor” list, being allowed to speak at office meetings or place brochures in the office, having an ad or link on the real estate office’s Web site, etc. Inspectors that do not pay the fee are not allowed to do any of these things.

Q: One question asks if this is allowed if money is not paid directly to the real estate office. I will answer most of these questions by quoting a Board of Technical Registration Rule (BTR) Rule:

A: R4-30-301.01. Home Inspector Rules of Professional Conduct

“A Certified Home Inspector shall not:

“1. Pay or receive, directly or indirectly, in full or in part, a commission or compensation as a referral or finder’s fee;”

Note that the rule states “directly or indirectly.” Any home inspector that pays to be on a preferred vendor or marketing partner list is subject to disciplinary action if a complaint is filed with the BTR. The BTR feels so strongly about this they have issued the following Substantive Policy Statement regarding preferred vendor programs. This Statement can be seen on their website at btr.state.az.usa.

Substantive policy statement

Arizona Administrative Code Section R4-30-301.01(B)(1) prohibits a Certified Home Inspector from paying compensation, even in an indirect manner, in order to obtain a referral for home inspection business. Many real estate companies, offices, brokers and/or agents have established programs under various names (i.e., “preferred vendor,” “approved vendor,” “marketing partner”) in which the home inspector makes a financial payment to the real estate entity to be included on a list of recommended inspectors, preferred providers or part of a similar program.

The board believes that payment by certified home inspectors to real estate entities or other parties who have a financial interest in the real estate transaction, to be included on a list of recommended inspectors, preferred providers, or similar program, is at a minimum an indirect payment for referral of business by the party to the Certified Home Inspector and violates A.A.C. R4-30-301.01(B)(1).

Filed with the Secretary of State on 1-16-04.

Applicable laws

Arizona Revised Statutes §§ 32-106(A)(5) and -128.

Arizona Administrative Code, Title 4, Chapter 30, R4-30-301.01(B)(1).

There is a simple and logical reason the BTR rules prohibit these programs. A client is assuming that Realtors are referring home inspectors based on the inspector’s competence, or experience, or honesty. The more honest inspectors will not participate in these programs, not only because they are against the BTR rules but because they are misleading to the consumer. This means the real estate companies with these programs are going to end up with a list of the least ethical home inspectors to refer to their clients.

I see some potential liability for the real estate offices too. Eventually a client will receive a poor home inspection and find out about the requirements to be on the real estate “preferred vendor” list. Do you think that client will be upset if he/she finds out their Realtor only referred home inspectors that were willing to pay to be on a list?

Another question was about a real estate company that said they are only going to refer home inspectors that provide them with copies of the inspector’s E&O (errors and omissions) and disability insurance. Although the home inspector is not “paying” for these referrals, there are problems with this program. First, E&O and disability are not required by Arizona for certified home inspectors, so the real estate company is requiring insurance that many home inspectors do not have. This may be construed as a preferred vendor program because it discriminates against certified home inspectors that have met all state requirements for certification.

To my knowledge, the BTR has not addressed a program exactly like this. Most home inspectors feel it is not ethical. If a home inspector is a member of a professional organization, he/she had better check the Code of Ethics of the organization. The American Society of Home Inspectors has a national Code of Ethics Committee. They received a request for interpretation for a case very similar to this. The last paragraph of the committee’s reply follows:

“Participating in such an agreement does not comply with second paragraph of the Code of Ethics to avoid conflicts of interest and is contrary to Code of Ethics paragraph #2 to act in good faith toward each client because clients would assume referrals are based on competence, not on a hidden protection to the realty company.”

These programs can also be misleading to the consumer. I can understand a Real Estate Office wanting to make sure any home inspectors they recommend are competent and have met all the state requirements for certification. But requiring proof of insurances that are not required by the state is, in my humble opinion, not reasonable or fair. I would not hesitate to provide copies of my insurance to a potential client, but I will not provide this to a Real Estate office.

Litmus test

Here’s the litmus test for inspectors: Say you miss something on an inspection, and it’s an honest mistake. Now say the client finds out you are participating in a preferred vendor program with the real estate office that referred you. Might not that client be suspicious that your inspection may have been affected by this agreement? This is why the BTR does not allow these programs. If you are an honest inspector you will avoid programs that could put doubts in the mind of the consumer, whether the doubts are valid or not.

By Randy West on November 10, 2006

You never stop learning and that’s part of the fun

My last column was on the difference between manufactured, mobile and modular homes. Briefly, I wrote that modular homes are built in sections on site and must comply with the current building codes, and I said that mobile and manufactured homes are the same thing and are built to HUD requirements and moved to the site whole.

I had some reader feedback on that column. Not everyone agreed that mobile and manufactured homes are the same. A few people said that homes built after a certain year are called manufactured homes rather than mobile homes. They didn’t always agree on the year of the change. I’ll just keep calling them all manufactured homes; that sounds better than mobile homes.

I received a long e-mail from Pamela Carver, who sounded like she knew what she was talking about. She told me there are now manufactured homes that are considered modular homes. She called these IRC homes, because they are built to comply with the International Residential Code rather than to HUD requirements. Following are two paragraphs from her e-mail:

“The footer for a modular on-frame is not just the perimeter of the house. When the footer is poured for the stem wall, it is also poured in ribbons. For a 32′-wide home, there are six ribbons parallel to one another the length of the home, and the two perpendicular end ones. These ribbons are dug out just like the stem wall, filled with cement, and will form the base for the perimeter stem wall and piers underneath the home.

“It will take longer to set and complete a modular on-frame for occupancy because there are four to five inspections by the state instead of three for the usual manufactured home. (I live in the county.) Cost is a factor, too. To have an IRC home costs approximately $11,000 more to build and an extra $6,000-$7,000 for the additional trenching and cement (ribbons).”

See, I told you she knew what she was talking about. That’s one of the things I love about my job; I never stop learning. Not everyone is as nice about “educating” me as Pamela.

Now, for some more education, here’s a new question:

I had a home inspection recently and my inspector tried to “sell” me an environmental disclosure report. He said this was required now by Arizona. I declined. Is there some type of mandatory disclosure report required by the state?

First, there is a Sellers Property Disclosure Statement, or “spuds,” that the homeowner fills out. This is usually provided to the seller by the listing Realtor, and given to the purchaser after a purchase offer is accepted. This is not what your inspector was talking about.

There is a new disclosure report available. This is the result of Arizona House Bill 2779, and goes into effect next Friday. The bill does not require this disclosure, but does recommend it. I believe that Realtors have to make clients aware this disclosure report is available.

The bill requires that the report provider have huge amounts of insurance ($10 million per occurrence; that’s a lot of zeros). The bill also requires the report provider to indemnify their clients for any claims resulting in errors or omissions in the report. In other words, if a seller provides this report to a purchaser, the seller is not liable for any of the information provided in the report.

A similar report is required in California, and at some point this report may become mandatory in Arizona. I am attending a class next week on House Bill 2779. If I learn any other fascinating facts, I will include them in a future column.

A final question this week from a Certified Home Inspector:

A local real estate company has asked me to advertise in a folder they give to their clients. I will be the only home inspector allowed to advertise. Since you review complaints against home inspectors for the state, would you find me in violation of BTR rules? What if I give Realtors a small gift, such as pens or calendars? What if I bring doughnuts to a Realtor office meeting?

That was actually a few questions. First let me mention that I am on the Enforcement Advisory Committee, and we do review complaints against home inspectors. However, I would never be involved in a case involving a Prescott inspector.

The important question is about advertising. The Board of Technical Registration published a Substantive Police Statement regarding “preferred vendor” programs. Every law or statement is open to some interpretation. Part of this Statement follows:

“Many real estate companies, offices, brokers and/or agents have established programs under various names (i.e., “preferred vendor,” “approved vendor,” “marketing partner”) in which the home inspector makes a financial payment to the real estate entity to be included on a list of recommended inspectors, preferred providers or part of a similar program.

The Board believes that payment by Certified Home Inspectors to real estate entities or other parties who have a financial interest in the real estate transaction to be included on a list of recommended inspectors, preferred providers, or similar program, is at a minimum an indirect payment for referral of business by the party to the Certified Home Inspector and violates A.A.C. R4-30-301.01(B)(1).”

My opinion is advertising when you are the only home inspector can be interpreted as a “preferred vendor” program. I am not aware of a complaint dealing specifically with advertising on a folder. I personally would not do this because I don’t want to be the test case. In my opinion, giving away pens or calendars would be OK, unless of course they’re gold-plated.

By Randy West on September 15, 2006

Home inspector didn’t consider the age of the home

Q: I’m pretty mad at a home inspector right now! He inspected my home last month and found a lot of stuff wrong. Some of it I didn’t mind fixing, but a lot of it was stuff that the law did not require when my home was built, like the openings in the deck railing and GFCI outlets in the kitchen. Doesn’t a home inspector have to consider when the home was built? The city never requires you to update your home to new codes.

A: I understand how you feel. Your home was built before GFCI outlets were a requirement in kitchens, so why does a home inspector come along and recommend them?

You need to put yourself in a buyer’s shoes for a minute. If you hired a home inspector, and he didn’t recommend some upgrades that may not have been a requirement when the home was built, you would be just as mad at him. The two you mentioned, GFCI outlets and deck railing openings, are both safety concerns. If you have small children (or grandchildren, etc.) you would really appreciate your home inspector pointing out that they could fall off the deck. Also, GFCI outlets are a relatively inexpensive safety upgrade that can prevent shocks or electrocution.

To further answer your question, the law requires Certified Home Inspectors in Arizona to report on these conditions. The Standards of Professional Practice for Arizona Home Inspectors defines “unsafe” as a condition that could pose a risk of personal injury. The definition further states: “The risk may be due to damage, deterioration, improper installation or a change in adopted residential construction standards.” So although Home Inspectors are not “code” inspectors, we do have to note conditions in older homes that may be unsafe if these same conditions are not in newer homes.

Also, you’re right that the city does not go around checking homes and requiring updates every three years when a new building code comes out. However, if you pulled a permit to remodel your deck or kitchen, the city would require that you bring the electrical, railings, etc., up to current standards.

Q: My home is almost 2 years old. As far as I know, there’s nothing wrong. Some of my neighbors are getting home inspections before their two-year warranty is up. Is this common? Do you really think this is necessary if I have not had any problems? I have a good relationship with the builder; will he be upset if I have a private home inspection?

A: I call these pre-warranty inspections, and they are becoming more common. Although most of my inspections are for buyers that have a house under contract, I do at least a few pre-warranty inspections every month.

And you’re asking a home inspector if a home inspection is necessary? Of course it is! Seriously, you should ask those neighbors what kind of recommendations their home inspectors have made. You have not had any problems with your home, but have you walked the roof, entered the attic, checked electrical outlets in every room, checked for carbon monoxide when all the gas appliances are operating at the same time? When you sell your home, the buyers will likely have a home inspection. If he finds something, it will be too late to have the builder repair it.

From my experience, most builders want to build a good home and are more than willing to correct something if necessary. Some builders are hiring Certified Home Inspectors as a quality control measure. There are rarely major expense items in a two-year old home. More frequently there are relatively minor items that contractors overlooked, often because this subcontractor thought that subcontractor was going to take care of it.

Q: I have worked in construction for many years and recently hurt my back. Workman’s Compensation will pay to retrain me. I’m considering home inspection. What’s involved in becoming a home inspector? Do most inspectors open their own shop or go to work for another inspection company? Is there room for more inspectors in the Prescott area? What’s the good and bad about the profession? Are those correspondence classes offered on TV any good?

A: Well, there’s a bunch of questions there. I’ll try to give short answers to all your questions, although some people say I’m incapable of giving short answers. What’s involved? Arizona requires education, passing the National Home Inspector Exam, 30 training inspections (some schools offer these), submitting a report that meets the Arizona Standards of Practice, submitting a fingerprint card for a background check and submitting proof of Errors and Omissions Insurance or a Home Inspector Bond (you can submit the insurance or bond after the state certifies you).

Work for a company or yourself? There are some multi-inspector firms in Arizona, most are in Phoenix. Most require you to sign a contract with a non-compete clause ­ they don’t want to train their competition.

Is there room for more inspectors in Prescott? I won’t answer that. If I say yes, and you don’t find work, you may try to borrow money from me. If is say no, you may think I’m just afraid of some competition. Call some of the newer guys and ask them.

What’s the good and bad? Self-employment is fun, if you’re cut out for it. Some people aren’t. The best part is buyers are always very appreciative of a good inspection and report. Many tell me I don’t charge enough, although none have offered to pay me extra. One bad part is re-inspections. Sellers are sometimes not so appreciative of a good inspection and report. The sellers were very nice the first time I was there and even offered me lemonade. When I have to go back to check on repairs, they want to know why I didn’t tell them about the improvements I recommended (by state law you can’t, unless it’s a major defect like a safety concern).

TV correspondence classes? Don’t get me started. If televisions weren’t so expensive I would have broken mine when Sally Struthers says you can train at home in your spare time to be a home inspector. There are some good correspondence courses that are offered by “real” home inspection schools. They don’t advertise on TV lumping home inspectors in with 27 other great careers you can learn at home. My personal opinion is a hands-on school is the only way to go.

I have a couple other comments for you. You said you hurt your back. Home inspection is not an easy profession. It’s easier than roofing or hanging drywall (I’ve done both). There’s not much heavy lifting, but you must enter attics and crawlspaces. Also, the chimney or gas appliance vent pipe in the attic is always at the opposite end of the home from the attic access, so you end up slithering and twisting through scissors trusses (and fiberglass insulation). I’ve hurt my back more than once twisting through attics. Just something to think about.

My best advice to anyone thinking about getting into this profession is to attend some classes. There is a local group of inspectors (YAPHI) that meets at 9 a.m. the second Saturday of every month at Pete’s Family Restaurant on Iron Springs Road. Arizona ASHI has four or five classes a year. The next is a two-day seminar on September 8 and 9 in Phoenix (check out azashi.org for more information). There’s no better way to get a feel for this profession than by attending one of these meetings or classes.

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